The European Commission, the EU's top antitrust watchdog, told the London exchange this month that the company will need to sell off a bond-trading platform in order to win approval for the Deutsche Boerse merger.

But the London exchange said the sale would cause various problems, including damaging its business in Italy, where the trading platform, MTS, is "systemically important." It said the Commission already rejected one alternative solution proposed by the stock exchanges.

As a result, the London exchange said it won't submit a plan to sell MTS in time to meet the Commission's deadline on Monday, making it "unlikely" the regulator will approve the merger.

The London Stock Exchange isn't giving up on the deal altogether, vowing in its statement to "continue to take steps" to try to make it happen. But it also made sure to mention that it's "highly confident" in its business prospects if the merger falls apart.

Deutsche Boerse said in a short statement that the two exchanges will await the Commission's decision, which is expected by the end of March.

Shares in both companies were down around 3% in Monday morning trade in Europe.

Billed as a "merger of equals," the all-share transaction would effectively be a takeover if it does go ahead: Deutsche Boerse shareholders would end up owning more than 54% of the new combined group, and the German company's CEO, Carsten Kengeter, would be chief executive.

The deal would build a powerful link between Europe's premier financial centers. London is a global center for banking and insurance, while Frankfurt is home to the European Central Bank and is the finance hub for Germany, the world's fourth biggest economy.